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Hello Sir,
In practice should we always assume that the required return on equity or debt should always be the same as the cost of equity or debt?
Thanks,
It is not a question of assuming anything!!
The cost of equity is equal to the required return by equity.
The required return on debt is pre-tax (because investors are not affected by company tax). The cost of debt to the company is after-tax and how we deal with it depends on whether the debt is redeemable or irredeemable.
All of this is explained in detail in my free lectures. They are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
Thanks Sir,
So this will be valid only for the equity not the debt,
Thanks,
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